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Apcotex Industries Ltd

| Q3 and 9M FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤3rd Feb 26

Summary : Apcotex Industries delivered strong Q3 and 9M FY26 results with significant profit growth, driven by volume, improved margins, and operational efficiency, while pursuing strategic expansions and managing market challenges.

Management Perspective positive : Management highlighted "very strong profitability and operational efficiency," stated they "managed it well" despite challenges, and expressed being "quite positive of the release in the next year" regarding new capacity.

Concall Report Analysis & Insights

Business Overview

  1. Q3 volumes grew 10% year-on-year, despite a 7% revenue decline due to falling prices.
  2. Operating EBITDA for Q3 increased 61% to INR 44 crores, with a 13.12% margin.
  3. Profit after tax for Q3 was INR 22 crores, up 91% year-on-year, with a 6.7% margin.
  4. Nine-month sales volumes were highest ever, up 15%, with exports up 21%.
  5. Company remains net cash positive and approved an interim dividend of INR 2.50 per share.

Future Growth Prospects

  1. Expansion plans worth INR 210 crores are already under implementation.
  2. New expansion project expected to complete by FY27, adding INR 550-600 crores to top line.
  3. Nitrile latex capacity utilization is projected to reach full run rate next year.
  4. The global glove industry is expected to grow 7-12% year-on-year.
  5. Company has spare land at Valia for potential future expansions.

Management Insights

  1. Performance is driven by volume-led growth, margin expansion, and operational efficiency.
  2. Successfully managed raw material price drops, maintaining prices and improving EBITDA.
  3. Targeting sustainable EBITDA margins between 12% and 16% in the normal course of business.
  4. Expansion plans for NBR continue with lower CAPEX despite anti-dumping duty delays.
  5. ApcoBuild strategy focuses on capturing additional margin from core products, not large-scale investment.

Signs of Skepticism

  1. Management is reluctant to disclose specific volume tonnage numbers due to competitive concerns.
  2. Anti-dumping duty for NBR, recommended by DGTR, has not yet been notified by the Finance Ministry.
  3. Uncertainty exists regarding whether the anti-dumping duty delay implies outright rejection.
  4. Nitrile latex capacity expansion is complex and not expected in the next one to two years.

Risk Factors

  1. Raw material price volatility can impact percentage margins, though ROCE may remain strong.
  2. Delay in anti-dumping duty notification for NBR poses a risk of product dumping.
  3. Global overcapacity in nitrile latex, particularly from China, affects market conditions.
  4. US tariffs have led to degrowth in carpet, textile, and tire segments.
  5. Short-term raw material shortages for key petrochemicals like styrene are possible.

Good To Know

  1. An exceptional item of INR 4.8 crores was provisioned for the new wage code notification.
  2. US imposed 100% anti-dumping duty on Chinese gloves from January 2026.
  3. A INR 3.5 crore investment in wind energy in Gujarat will yield credits early next year.
  4. The effective tax rate is expected to be around 27-28% for the year.

Key Drivers

  1. New expansion project completes by FY27.
  2. Nitrile latex capacity reaches full utilization.
  3. Global glove industry shows strong growth.
  4. Improved margins and operational efficiency.

Key Analyst Discussions

Competitive Environment

  1. Global nitrile latex market still faces overcapacity, particularly from China.
  2. US anti-dumping duty on Chinese gloves benefited customers in Southeast and South Asia.
  3. Potential dumping of rubber products is a risk if anti-dumping duties are not imposed.

Market Trends & Consumer Behavior

  1. Paper industry faces dumping issues, while construction is booming in India.
  2. Carpet, textile, and tire segments experienced degrowth due to US tariffs.
  3. Raw material price volatility is an inherent challenge managed through pricing adjustments.

Financial Highlights

  1. Raw material price declines were managed effectively, contributing to improved EBITDA.
  2. Interest costs dropped significantly due to debt repayment and lower interest rates.
  3. The expected effective tax rate for the year is approximately 27-28%.
  4. Working capital utilization is projected to increase in the coming months due to rising raw material prices.

Product Composition

  1. Nitrile latex, improved paper segment, and full capacity rubber segment contributed to EBITDA.
  2. Super absorbent polymers are not within the company's current chemistry or focus.
  3. NBR is at 100% capacity, nitrile latex at 70-75%, and other products at 85-87% utilization.

Strategic Considerations

  1. Expansion plans are on track for FY27 completion, adding INR 550-600 crores to revenue.
  2. Future nitrile latex capacity expansion is not planned for 1-2 years due to global overcapacity.
  3. ApcoBuild business focuses on capturing additional margins, not becoming a large-scale player.
  4. Forward integration into glove manufacturing is not currently planned due to existing industry overcapacity.